Tanya Thomson is the principal of Tanya Thomson Law, a boutique law firm specialising in competition, energy and commercial law. This is the second in a four-part series of articles on trade practices law for SMEs, covering the main competition and consumer protection legislation and also looking at the value of compliance programmes.
Last week I wrote about the Fair Trading Act, which primarily governs what happens before a customer makes a purchase. In contrast, the Consumer Guarantees Act protects consumers after a purchase by implying a series of guarantees about the goods or services bought. These are backed up by specific remedies if those guarantees are not met.
The Consumer Guarantees Act (CGA) cuts a wide swathe - it applies to consumer goods and services "ordinarily acquired for personal, domestic, or household use or consumption", even if these are provided to businesses. If your business is provides this type of goods or services, then understanding your CGA obligations is necessary not just to comply with the law but to minimise customer disputes.
The key guarantees in respect of goods are:
• the goods must be of acceptable quality, which means safe, durable, free from defects and fit for their usual purpose. There is an exception where defects are specifically pointed out.
• they must also be fit for any purpose which the supplier has represented them as fit for and/or for which the consumer has stated the goods will be used.
• goods supplied by sample or description must match that sample or description. This comes into play in sales where the actual goods cannot be inspected first by the consumer - for example where a customer orders a computer the same as the display model or based on an online description.
• spare parts and repair facilities will be reasonably available.
Compliance with these guarantees is judged against the expectations of the reasonable consumer, given the nature of the goods, the price paid and the labelling and other information given.
What this means is that an expensive appliance should last longer and perform better than one at the bottom of the range - but the latter must still "go". A common area of dispute is about "fitness for purpose", especially where the customer is claiming fitness for a purpose other than the usual one, on the basis they made the intended purpose clear to the retailer. Retailers must take care not to oversell goods by promising performance for which the goods are not suited.
Remedies Available to the Customer
A key feature of the Act is that the customer's rights and the corresponding obligations of the supplier and manufacturer are different depending on the severity of the problem. In brief, customers can reject goods (i.e. demand a replacement or refund) if the fault is substantial. For a lesser fault, the supplier can choose to fix the goods, or replace them.
There are some common mistakes made by suppliers that your business can avoid
• Telling customers that they only have a right to have their goods fixed, not to a refund. This is only correct if the fault is not substantial. If it is substantial, the customer can reject the goods i.e. require a refund or choose a replacement (at the customer's option).
• Telling a customer that a faulty product is not covered because the warranty has expired. The CGA applies in addition to any contractual warranties, so even if the warranty has expired there may still be an obligation under the CGA to remedy the fault.
• Retailers telling customers they have to contact the manufacturer about product defects. In some cases customers may choose to go to the manufacturer for a remedy, but most customers want a remedy from the place they bought faulty goods and they are entitled to go to the retailer even if the defect originated with the manufacturer. The retailer may be able to claim back from the manufacturer under their contract, but cannot avoid responsibility to the consumer.
Customers causing faults
The customer is not entitled to a remedy if he or she used the goods in an unreasonable way (e.g. tried to dry all their clothes with a hairdryer and it blew up) or unreasonably frequently (for example using a domestic oven for a significant catering operation). However this only applies if the customer's unreasonable use caused the problem. If the product was faulty from the start, the customer is entitled to a remedy.
Application to Services
While most businesses are aware of the CGA's application to goods, not everyone realises that it also covers services where those are of a kind generally used by consumers. The Act implies guarantees of reasonable care and skill and fitness for purpose and a reasonable time for completion (if one is not specified). As with goods, the Act provides specific remedies if these implied guarantees are not met, including the ability to get someone else to do the work and to recover reasonable costs from the supplier. Potentially even more important is the guarantee as to price - if price is not specified, the consumer is not liable to pay any more than a reasonable price.
These implied guarantees should act as an incentive for service providers to ensure that the terms of their services are explicit and preferably in writing, and - especially where the "purpose" of the service is ambiguous, it is specified exactly what the customer is purchasing the service for.
Can you get out of the CGA?
Businesses supplying good or services to other businesses can contract out of the Act. However, you cannot contract out for supply to consumers and attempting to do so is a breach of the Fair Trading Act. This means that businesses need to be careful about the wording they use if attempting to contract out.
There are a number of "grey areas" in the application of the CGA, both in terms of determining whether or not goods or services have met the implied guarantees and (if not) which remedy is applicable. Businesses may need legal advice on specific situations, but understanding your basic obligations and combining that with a commitment to working with customers to resolve complaints will minimise consumer disputes.